When you’re new to the world of buying property, it is common to have a series of questions about a process that doesn’t offer much information. At Wise, we have put together some of the most commonly asked questions when it comes to auctions.
Has the seller set a reserve price? At every property auction in Melbourne, the auctioneer usually takes a pause during a live auction to consult the vendor. This is to discuss if the pre-auction reserve has been satisfied. At this point, if the vendor gives the agent the green light, the property is on the market and the highest bid thereafter will purchase the property.
When is the property sold at auction?
The sale takes place at the time the successful bidder signs a legally binding contract and pays a negotiated deposit for the property. This is known as ‘Exchange of contracts.’
Do I have to pay 10% deposit on the day?
There is no law stating that a 10% deposit is required. Rather, a negotiated amount between the seller and buyer. Property law does state that a deposit must be something of value, usually currency but could be anything the seller accepts, for instance, an expensive watch, a car or painting.
On auction day, successful auction bidders must sign the contract of sale, this will summarise settlement terms, deposit amount, settlement date and amount paid for the property. All of this is negotiable and using a buyer’s agent could leverage these terms to close a negotiation.
TIP: Real estate agents love collecting a 10% deposit because it covers their costs of advertising and commissions, regardless of if the buyer settles on the property or not.
Can I submit an offer prior to auction?
This is usually up to the seller and their representative the real estate agent. There is a great change of a private negotiation if the auction campaign has been slow. Hence a high chance of a pre-auction offer being accepted.
A buyer’s agent prefers to operate in this type of scenario as it favours their clients offer by reducing the competition – otherwise known as a private negotiation. For more information on this topic, you can read our article on Making an Offer on a House.
What is the price of the property if it’s selling at an auction?
This issue is one of the biggest problems in real estate and unfortunately real estate agents leverage this advantage.
Why is it so hard to set a price? No two properties are the same hence their price can vary. Sometimes a little but most of the times, a lot. Factors like schools zones, land size, quality of interior finishing and size of floor plan need to be taken into consideration.
In 2017 the state government made efforts to establish laws and stop agents from underquoting, it’s still very common for properties to sell well above their quoted price. More information on under quoting.
At Wise Real Estate Advice, our buyer’s agents give clients a detailed market appraisal based on similar sales that have been made within the last 6 months. The price will factor in the market value and what the property should sell for under certain auction conditions.
Auction lingo confuses me, what do they mean?
First call, second call, vendor bid, refer the bid? Check out our page on understanding auction speak.
Is there cooling off, building inspection or subject to finance clauses allowed at auctions?
The reason why sellers and real estate agents love auctions is because the result is final, in other words ‘unconditional’. This means the responsibility falls on the buyer if:
- The property is faulty. It is up to the buyer to organise a building inspection prior to the auction date.
- If you have over-paid for the property and the bank will not offer you finance. It’s wise to have an unconditional bank pre-approval.
- If you change your mind, winning an action means you have purchased the property, no cooling off period applies.
If for whatever reason you choose to not proceed with the sale, at minimum you will lose your initial deposit. The worst-case-scenario would be the seller suing you for further loss or damages.
How many vendor bids can an auctioneer make?
An auctioneer can make as many bids as they seem necessary to push buyers above the vendor’s disclosed reserve price. At Wise Real Estate Advice, our buyer’s agents frequently negotiate below a vendor bid if it’s deemed to be unreasonable.
Do I have to pay the real estate agent if I win the auction?
It’s illegal for a real estate agent to accept two commissions when selling one property. The real estate agent is paid exclusively by the seller to advertise and sell the property, hence there is no need for a buyer to pay the agent.
If the buyer chooses to engage a professional bidder or buyer’s agent to represent them at action, then the pre-arranged fee is settled upon prior to the auction. More information on buyers agents fees.